While attorneys offer advice to clients and execute legal documents for them, are they liable when the client makes a decision that doesn’t provide the resolution originally anticipated? In this professional liability claim an attorney counsels an employee to proceed with caution, but the employee has other ideas.
Plaintiff Carol Reynolds was the bookkeeper and legal secretary for defendant Lucy Crawford, a patent lawyer. Mrs. Reynolds and her husband, George, owned a second home that they rented to a tenant on a monthly basis. On two different occasions, Reynolds obtained advice from Crawford to serve a “Demand for Possession for Non-Payment of Rent” to secure late rent payments from her tenant, which Crawford prepared. Reynolds again approached Crawford, requesting advice on what to do about the delinquent tenant. Reynolds contended that Crawford then advised her to participate in a mortgage reduction program offered by one of Crawford’s patent clients, WYM (Wipeout Your Mortgage) Technology Solutions.
The WYM Tech system was advertised to the public as a superior investment system that was so successful that borrowers were guaranteed satisfaction of their mortgage within a five- or six-year period, and the borrower only had to pay half the mortgage payment with the WYM system paying the other half. Crawford told Reynolds that Ms. Crawford had, in fact, put the mortgage on her own house in the WYM Tech system. Crawford contended that she advised Reynolds to wait and see if the system worked for her.
Crawford scheduled a meeting with Mr. and Mrs. Reynolds and WYM Tech’s CEO in a conference room at her law firm. Crawford did not actually participate in that meeting. A month later, a closing was conducted at Crawford’s office in order to place Mr. and Mrs. Reynolds’ mortgage on their second home in the WYM Tech system. Mr. and Mrs. Reynolds also decided to put the mortgage on their principal residence in the WYM Tech system.
The mortgages on both houses were refinanced, and checks were cut for the equity in those homes and delivered to WYM Tech. Mr. and Mrs. Reynolds signed contracts with WYM Tech whereby the Reynoldses were to pay half of the monthly mortgage payments and WYM Tech was to pay the other half. WYM Tech made those payments for four months and then ceased making any further payments. Before the suit was filed, Mrs. Reynolds stopped working at the law firm and her application for unemployment benefits was denied.
When Crawford was made aware that WYM Tech had ceased making payments, she sent a letter to WYM Tech’s CEO on behalf of the Reynoldses, demanding that they catch up on those payments. But WYM Tech failed to do so.
[Related: How to avoid liability to third parties]
As a result, Mr. and Mrs. Reynolds sued Crawford and her law firm for legal malpractice, breach of fiduciary duty and fraudulent misrepresentation. The Reynoldses claimed that they were required to make mortgage payments on both houses that were substantially higher than before they became involved in the WYM Tech system. They also contended that they would lose one or both of those houses to foreclosure since they did not have the financial wherewithal to continue making those payments. The Reynoldses also claimed depression, anxiety and humiliation, for which they underwent counseling and treatment.
Shortly before trial, the New York Times published a front page article exposing the WYM Tech system as a real estate Ponzi scheme.
Plaintiffs’ final settlement demand was $3 million. Defendant’s final settlement offer was $60,000 to resolve the case. At the end of a six-day jury trial, plaintiffs’ attorney asked the jury to award $1 million in alleged damages.
What was the jury’s finding? It rendered a no cause verdict in favor of the defendant, answering “no” to the initial jury verdict questions: Was the defendant professionally negligent, and was the conduct of the defendant fraudulent?
Defendant’s theory at trial was that there never was an attorney-client or fiduciary relationship between the plaintiffs and Crawford with regard to plaintiffs’ decision to loan money to WYM Tech. Mrs. Reynolds was merely an employee of the firm. In addition, even if an attorney-client or fiduciary relationship could be established, Crawford did not cause the plaintiffs to loan money to WYM Tech. Mrs. Reynolds chose, on her own, to participate in the WYM Tech system as Crawford cautioned Reynolds to wait to see whether it worked for Ms. Crawford.
And finally, the lawsuit was filed, not because of any alleged malpractice by Crawford, but because Mrs. Reynolds’ application for employment benefits was denied after she quit working for the law firm.
David C. Anderson is an attorney/shareholder in the firm of Collins Einhorn Farrell PC, a Your House Counsel member firm in the Greater Detroit area. Anderson serves as co-chair of the Professional Liability Practice Group. He can be reached at email@example.com.